Retiring changes a lot of things, including the way you invest. You switch from building a nest egg to living off of the egg you've amassed. One of the best ways to do that is with reliable dividend stocks like W.P. Carey (WPC -1.75%), 3M (MMM -0.01%), and The Southern Company (SO -0.49%). Here's a primer on each.
1. A rock in the storm
Real estate investment trust (REIT) W.P. Carey has so far sailed through the global pandemic without missing a beat. Its occupancy numbers have remained close to 100%, and even at the worst of the hit it was able to collect 96% of the rent it was owed. Rent collection is up to 99% at this point. In fact, it has even managed to increase its dividend each quarter so far this year, albeit by a token amount. But the key takeaway is that those hikes made a statement about the strength of this REIT's business.
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Sporting a generous 6.2% yield, W.P. Carey provides more diversification than just about any other REIT you can buy. Its rent roll is spread across industrial (24% of the total), warehouse (23%), office (23%), retail (17%), and self-storage (5%) properties, with a fairly broad "other" category filling out the mix. Moreover, 37% of its rents are derived from outside the United States (mostly in Europe). The REIT's performance through the pandemic shows that diversification has been just as beneficial for its business as diversification can be for your portfolio.
Now add in the fact that W.P. Carey is a net-lease REIT, which means it owns properties but its tenants are responsible for most of the costs of the assets they occupy. This is generally considered a low-risk business backed by long leases (W.P. Carey's average lease length is over 10 years). That helps explain why the company has been able to increase its dividend every year since its 1998 IPO. It would be a good addition to just about any retirement portfolio.
2. Innovation is key
Next up is iconic industrial giant 3M, formerly known as Minnesota Mining and Manufacturing. Like W.P. Carey, 3M has a long history of dividend increases behind it, with annual hikes in each of the last 62 years. The average increase over the past decade was around 10%, which makes this something of a dividend growth play. That's important to keep in mind, given that the 3.6% yield may not seem particularly enticing at first glance. However, add that strong history of dividend growth to the fact that the yield is toward the high end of the company's historical yield range, and it suddenly looks a lot more interesting.
There are two big takeaways with 3M. The first is that it is a large and diversified company. To put some metrics on that, it breaks its business into four segments: safety & industrial (36% of the company's $8.4 billion in third-quarter sales), transportation & electronics (27%), healthcare (26%), and consumer (17%). But within those groups, which serve the entire world, are dozens of different businesses, from Post It Notes to medical coverings.
That brings up the next big issue: innovation. One of the key factors in 3M's long-term success has been its ability to invent (or acquire) new technology and then find ways to use it across its entire business. The adhesives behind sticky notes and medical coverings are both basically the same technology.
Although times are tough today thanks to COVID-19 (adjusted net income of $1.4 billion was off by 6.1% year-over-year in the third quarter), there's no indication that 3M has completely lost its way on the research front. Indeed, once the pandemic has passed and the company can get back to innovating instead of focusing on ramping up production of safety equipment, there's likely to be a bright and steady future ahead.
3. Boring is beautiful
The last name here is utility The Southern Company. It's basically a pretty boring company focused on generating and selling electricity and distributing natural gas. It has been working through a large and troubled nuclear construction project, but that's getting closer and closer to completion at this point. And despite the highly public delays and cost overruns involved in building the Vogtle nuclear power plant, Southern has continued to increase its dividend on a regular basis.
Its annual dividend streak is up to 20 consecutive years of increases at this point. But that doesn't do justice to Southern's dividend strength. Indeed, it has raised its dividend or held it steady for over seven decades. This is not a stock that will excite you, and the dividends grow slowly over time (roughly 3.5% a year over the past decade), but it has proven that it can keep paying through good times and bad. That means that its roughly-4% yield can provide a reliable foundation for a more diversified portfolio. Most investors should have at least one slow and steady tortoise in the mix.
Time for some deep dives
If you are looking for dividend stocks to help fund your retirement, W.P. Carey, 3M, and The Southern Company are all names that should be on your short list. Carey sits at the high end on the yield front, 3M is more of a dividend growth play, and Southern is a boring but reliable cornerstone. If you take the time to get to know this trio, one or more is likely to end up in your portfolio today.
